Variable Costing Income Statement

The following data were adapted from a recent income statement of The Procter & Gamble Company $($PG$)$:

Line Item Description $($in millions$)$

Sales $$160,110$

Operating costs:

Cost of products sold $$(76,850)$

Marketing, administrative, and other expenses $(51,240)$

Total operating costs $$(128,090)$

Operating income $$32,020$

Assume that the variable amount of each category of operating costs is as follows:

Line Item Description $($in millions$)$

Cost of products sold $$43,230$

Marketing, administrative, and other expenses $20,810$

Question Content Area

a$.$ Based on the data given, prepare a variable costing income statement for Procter & Gamble, assuming that the company maintained constant inventory levels during the period.

The Procter & Gamble Company

Variable Costing Income Statement $($assumed$)$

$($in millions$)$

Line Item Description Amount Amount

$$-$ Select $-$

$-$ Select $-$

$$-$ Select $-$

$-$ Select $-$

$$-$ Select $-$

Fixed costs:

$$-$ Select $-$

$-$ Select $-$ blank

$-$ Select $-$

$$-$ Select $-$

Question Content Area

b$.$ If Procter & Gamble reduced its inventories during the period, what impact would that have on the operating income determined under absorption costing?

If Procter & Gamble reduced its inventories during the period, then the cost of products sold would fill in the blank $1$ of $3$

fixed costs allocated to the beginning inventories. Thus, the total fixed costs of produc